NEW YORK (CNN/Money) -
Verizon Communications Inc. reported lower first-quarter income Tuesday that still edged past Wall Street forecasts.
The nation's largest telecom earned $1.6 billion, or 58 cents a share, excluding special items, down from $1.9 billion, or 69 cents, on that basis a year earlier. Analysts surveyed by First Call forecast EPS of 57 cents.
Including special items, the company posted net income of $1.2 billion, or 43 cents, down from $2.4 billion, or 88 cents, a year earlier.
Revenue increased 3.9 percent to $17.1 billion, its best growth rate in three years. The main driver of the increase was Verizon Wireless, the joint venture with Vodafone of which Verizon owns 55 percent. Verizon Wireless saw revenue climb 21.2 percent, to $6.2 billion.
"Verizon is transforming itself into a wireless company, and a very good one," said Marquis Investment Research analyst Greg Gorbatenko in a note to clients following Verizon's report.
Long-distance revenues increased 13.3 percent to $1 billion, and the company says it now sells long-distance to 45 percent of its customers where the service is offered. It also added 345,000 DSL Internet customers to bring that total to 2.7 million. But overall domestic telecom revenue posted a 3.3 percent decline to $9.6 billion.
"While domestic telecom revenues were down, we recognize that this is part of the evolution of our business model, and we are on track with where we want to be," said a statement from Chairman and CEO Ivan Seidenberg. "It's significant that new growth businesses, such as wireless, data, long-distance and broadband, now account for more than half of our revenues."
The company continued to see a decline in the number of land lines by customers, but Chief Financial Officer Doreen Toben said much of that was a conversion of secondary phone lines that had been used to dial-up computers to DSL service.
"This was our best quarter ever in DSL," she told investors on a conference call Tuesday. "Consumer DSL revenues are up 42 percent year over year and 15 percent sequentially."
The company cut 20,000 employees in wireline services compared to a year earlier, and it believes it may be nearing the bottom in that sector. Seidenberg said the company is hopeful that if economic recovery picks up this year demand for domestic telecom will start to show some growth.
"In wireline we believe we are seeing signs of recovery," Toben added.
But Gorbatenko expressed doubt that problems are over for the wireline business, even if he thinks Verizon is better than other so-called "Baby Bells" to perform in that sector.
"Verizon should continue to bleed in wireline, exacerbated by voice over Internet protocol coming down the pike," he said. "However, the revenue shortfall could continue to get picked up by a stellar wireless unit. While we continue to believe the (local phone companies) industry isn't going to make anyone rich in the near term, Verizon is our top pick in the space."
International revenue fell nearly 10 percent to $468 million, while revenue from information services, primarily its yellow pages and directory services, slipped 2.2 percent to $1 billion.
Shares of Verizon (VZ: unchanged at $37.74, Research, Estimates), one of three new components of the Dow Jones industrial average, was up slightly in early trading Monday.
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